Earlier today I was interviewed by Donald McIntyre at Newfination. We discussed a number of topics related to cryptocurrencies and trustless asset management including smart contracts and how they can be applied in China (see video below).
My current motivation and interest stems from the lack of clear property rights and contracts in China. While some jurisdictions are better than others (like Shanghai), no one actually owns property for more than 70 years whereupon it is automatically reverted back to the state.1 In many cases, the actual property may only have a 40 or 50 year lease left because of the different staggered stages of post-Mao liberalization.
Furthermore, at any given time these titles can be revoked or modified by a 3rd party without recourse. As a consequence, land confiscation is very common and is actually the leading cause for social unrest. For example, each year approximately 4 million rural Chinese are evicted from their land.2 Why? Because, according to an HSBC report, local governments generate 70% of their income from land sales much of which are ill-gotten gains for one ore more party (e.g., state owned firms have local leaders evict farmers from land).3 And there is no property tax, not because China is some hyper libertarian utopia but because corrupt officials — some of the same ones that confiscated the land — do not want to reveal their property holdings.
Potential cryptocurrency-related solutions
In 2004 a report from the OECD found that roughly half of all urban Chinese workers, primarily migrant workers from the provinces participated in the informal sector (this is between 120-150 million people).4 Could they benefit if their payroll and compensation was managed by a Decentralized Autonomous Corporation rather than a human laoban (boss) who could change their mind or otherwise abuse the relationship (e.g., change the contract ex post)? For instance, without an urban hukou (household registration) most of these migrant workers are left without any legal recourse in the event that their contracts are tampered or ignored.
‘Trustless asset management’ tools built on top of a cryptoledger such as Bitcoin or Ethereum (which are tamper-evident) could empower not just those in the developed world, but also those in the developing world who are more easily marginalized without political guanxi. Even if trustless asset management networks are not deemed legitimate or valid by the government or a Party apparatus, the goals of several decentralized smart contract based systems being developed could level the playing field and allow individuals from all walks of life to actually codify and manage scarce goods that they currently own.
While books and volumes could be written on this topic, one view is that even if there are stricter capital controls and regulations on cryptocurrencies in China (or elsewhere), that by using a couple different ‘colored’ coin chains (or Ethereum contracts, etc.) Bob from Beijing could still transfer assets worth X amount of money to Anhui Alice instead of X amount of money itself. This according to the promoters, could create a sort of advanced barter system which may not be as efficient in terms of actually using a cryptocurrency as a medium of exchange but it could help those in an informal economy qualify and quantify asset value and clear up some of the confusion around contracts and property ownership.
- See China’s Real Estate Riddle from Patrick Chovanec, You May Own your Apartment, but who Owns the Land Underneath Your Feet? by Thomas Rippel and If Beijing is your landlord, what happens when the lease is up? from China Economic Review [↩]
- See China’s Land Grab Epidemic Is Causing More Wukan-Style Protests from The Atlantic and China Tackles Land Grabs, Key Source of Rural Anger from The Wall Street Journal [↩]
- See China land price fall threatens local finances from Financial Times and China’s land-seizure problem from Chicago Tribune [↩]
- Internal Migration in China and the Effects on Sending Regions from OECD [↩]